presentation - First International Social Transformation Conference

Regulating digital money
Shann Turnbull PhD
Research Fellow: The 40 Foundation
[email protected]
Cell:+61418 222 378
Views of Mervyn King - Governor of the Bank of England
“Of all the many ways of organising banking, the worst is the
one we have today” (2010: 18).
“Will future historian look back on central banks as a phenomenon
largely of the 20th century?” (1999:47)
“Is it possible that advances in technology will mean that the
arbitrary assumptions necessary to introduce money into rigorous
theoretical models will become redundant, and that the world may
come to resemble a pure exchange economy?” (1999:48)
“There is no reason, in principle, why final settlements could not be
carried out by the private sector without the need for clearing
through the central bank” (1999: 48).
Tomorrow all money will be digitalstored and transacted in mobile phones
How will money be created?
What might money be used for?
What forms should be accepted?
How should money be regulated?
Should money seek to correct: “The biggest market
failure the World has ever seen” (Stern 2006)?
New options introduced by digital money
1.
2.
3.
4.
5.
6.
Introduce multiple currencies;
Allows automatic conversion of currencies;
Makes practical demurrage money;
Biometric/biographical identification;
Introduces digital purses;
Allows contactless transactions without ATMs
or bank branches;
Criteria for regulating digital money Governments need to decide
1.
2.
3.
4.
5.
6.
7.
8.
9.
Centralize or decentralize?
Belief system or anchored in nature?
Value determined subjectively or objectively?
Positive or negative money?
Interest earning or demurrage money?
Commercialized or mutualized?
Created top down or bottom up?
Controlled by 1% or the 99%?
Complementary or replacement currency?
Central banking misallocates resources
Consider a mind experiment with one assumptions concerning
Western Australia that has 10% of the Australian population and
earns 70% of Australia’s foreign exchange.
Assume: imports of regions are proportional to their populations;
This means:
WA citizens earn seven times the FX then they need.
Eastern citizens only earn 30% of the FX they consume.
If each region possessed its own currency then the value of the
$West would be much higher than the $East. Manufacturing and the
export of educational and tourist services would be invigorated in
the East.
Conclusion:
Central banking can misallocates resources much more than tariffs
or taxes.
Sustainable and Non Sustainable Power Generation
Interest over 25 year life of generators
yielding same kilowatt hours
Renewable
Exhaustible
Sources
Sources
10%
(Hydro, Solar, Wind, etc)
Operating
Costs
(Coal, Gas, Oil)
Other Operating
Costs (20%)
Fuel
55%
(35%)
90%
Interest
on cost of
generator
Interest
on cost of
generator
45%
Eliminating the cost of interest reduces the cost of renewable power by 90%
Power from Exhaustible sources become 5.5 times more expensive
Power Consumption per person v’s GDP per person
Goberty &
Zitoli (2012),
‘Deko: An
electrictybacked
currency
proposal’
available at:
http://ssrn.co
m/abstract=18
02166
Cost carrying “Neutral” Money
 Proudhon, P. (1840) argued against usury that allowed the holders
of money to get richer without making any contribution to society
from what his former associate Karl Marx described as “synthetic”
values rather than “factual” surplus values extracted from workers.
 Gesell (1919) was inspired by Proudhon to propose that money
should depreciate like life supporting commodities by the
introduction of a usage fee.
 Privately issued credit notes called Wära” were introduced into
Germany during the 1920’s requiring a stamp of 1% of their value
to be affix each month. (The word Wära was created by combining
the German words for goods and currency)
 Suhr (1990) described it a “neutral money” as it created a more
level playing field between investing in money or other assets
Ecological currencies
 Keynes (1936: Chapter 23, part VI) described Gesell as an “unduly
neglected prophet”.
 Gesell proposed that money should incur a cost of 0.1% of its face
value per week, equivalent to 5.4% per annum. Keynes (1936)
thought that this “would be too high in existing conditions, but the
correct figure, which would have to be changed from time to time,
could only be reached by trial and error”
 Even with a cost 20 times greater of 2% per week as widely
accepted the script would be more attractive that modern credit
cards that charge up to 2% or more per transaction.
 Many versions of cost carrying money were redeemable into goods
or services to establish a unit of value independently of fiat money.
 Money redeemable into services of nature like renewable energy
that also have limited life like all life forms is described by this
author as “ecological”
Limited life self-financing money
 Locally issued limited life cost carrying money spread rapidly
through Europe and the US during the Great Depression between
1931 to 1933.
 Various forms were issued by merchants and local governments
with a cost of 2% per week being popular with some being
redeemable into official money at a discount of say 4% to provide
an incentive to pass on the script rather than redeem it.
 Stamp script quickly spread because it was so successful in
stimulating local economic activities on a self-financing basis.
 In February1933 a Bill was introduced into the US Congress to
issue one trillion dollars of “Stamp Scrip” to stimulate the
economy to pay unemployment benefits and build infrastructure.
The sale of stamps would have allowed the US post office (not the
Federal Reserve) to redeem all the script given away and make a
$40 billion gross surplus!
Evaluating Units of Value (1)
Comparison
criteria
1 Unit of value
Fiat dollars
Gold
dollars
Not defined Ounces/gra
ms
2 Quality testing Not required Density
3 Intrinsic value
Negligible
Say 10%
Renewable
Energy
Kilowatthours
Not
required
100%
Emergy
4 Subjective
value
5 Source of
currency
6 Equity of
supply
7 Cost of
distributing
reserve
100%
Say 90%
Nil
Not relevant
Government
decree
Depends on
Gov.
Negligible
with
electronic
Few
locations
Concentrate
d
Changes
little with
distance
Many &
technology
Widely
spread
Increases
with
distance
Not relevant
Equivalent
solar emjoules
Not required
?
According to
location
Not relevant
Evaluating units of value (2)
Comparison
Fiat
Gold dollars
criteria
dollars
8 Changes in
Controls & Little related
production
interest
to
of money
rates
consumption
/GDP
9 Volume of
Indirectly Geography,
money
by interest trade and
controlled:
rates
government
10 Rate of
Fiscal and Fluctuates
change in
monetary with region
production
policies
and time
of money
11 Cost of
Not
1% of value
storage
required
p.a.
12 Cost of
Not
1% of value
insurance
required
p.a.
Renewable
Energy
Usually related
to living
standards
Emergy
Not
relevant
According to
economic
activity
Relatively stable
by region and in
time
Not
relevant
Not required
Not
relevant
Not
relevant
Not required
Not
relevant
Differences between existing and Ecological Money
Difference between:
Existing money
Ecological money
1
Money created by:
Government & banks
Producers, traders and investors
2
Interest rates fixed by:
Central Bank
Cost of risk insurance
3
Expansion of money:
Government ratios/regulation
Value of transactions
4
Money defined by:
Government fiat
Local resources of nature
5
Choice of currency
Government monopoly
Determined by community
6
Inflation control by:
‘Blunt’ policy instruments
Value of renewable energy (REDs)
7
Structure of money:
Unlimited accrual of interest
Carrying cost limiting life
8
Economic flaw-1
Incentive to own money
Disincentive to hold money
9
Economic flaw-2
Allocates resources to finance
Real assets more attractive
10 Economic flaw-3
Distorts price relativities
Price related to sustainability
11 Environmental flaw-1
Incentive to burn carbon
Favors renewable energy
12 Environmental flaw-2
No feedback from nature
Nature controls price signals
13 Social flaw-1
Compounds unearned income
No unearned income
14 Social flaw -2
Concentrates influence
Localizes influence
15 Political flaw-1
Concentrates power
Enriches local democracy
Ecological Money from local cooperatives
Money created by citizens and firms creating wealth;
 Insured credits for citizens to consume and invest becomes money
(Insured IOU’s by sellers of goods and services become negotiable);
 Money carries part of insurance cost to avoid interest costs!
 Cost carrying money eliminates money as a store of value and
reduces 1% getting richer from the 99% to reduce inequality;
 Credit contracts defined by retail value of electricity from local
cooperatively owned renewable energy generators;
 Future values, prices & costs no longer subject to inflation and/or
manipulation by government and/or banks;
 Credit insurance cooperatives established in each bio-region;
 Elimination of central banks and crisis from external contagion;
 Green Money transacted through cell phones by-pass big banks;
 Bio-regional credit unions & savings associations replace banks.

Sustaining nature and humanity
Green Money as a global unit of account with a local unit of value;
 Renewable energy in each bio-region determines economic values
and so how markets allocate resources sustainably in each region;
 Quality of modern life depends on energy consumption. Market
forces distribute the plague of people on the planet on a
sustainable basis;
 Size of financial institutions constrained by bio-region;
 Cost of the financial system to service real economy minimized;
 Degrading economic growth not required to pay interest costs:
 Green Money facilitates achieving prosperity without growth;
 Inconvenience of Green Money having different regional values
overcome by inbuilt cell phone facility to execute exchanges;
 Green Money reduces the bias to hold money rather than the
means to create prosperity;
 Green money can reduce or eliminate the need for carbon taxes or
trading

References
‘How would the invisible hand handle electronic money?’ in Lynne Chester,
Michael Johnson & Peter Kriesler, eds Heterodox Economics’ Visions 2009,
available at: http://ssrn.com/abstract=1399224.
‘Options for Reforming the Financial System’, in The IUP Journal of
Governance and Public Policy, 6(3): 7-34, September 2011, available at:
http://ssrn.com/abstract=1322210.
‘How might cell phone money change the financial system?’ The Capco
Institute Journal of Financial Transformation, 30:33-42, November 2010,
http://papers.ssrn.com/abstract_id=1602323.
‘Money, Renewable Energy and Climate Change’, Financiële
Studievereniging Rotterdam, (FSR Forum), 12:2, pp.14–17, 19-22, 24, 25, 28-29,
February, 2010, Erasmus University, Rotterdam:
http://ssrn.com/abstract=1304083.
References
‘Mysteries of a failed financial system and how failure can be avoided’, April
19, 2009, Ethical Markets, posted at: http://www.ethicalmarkets.com/wpcontent/uploads/2009/04/mysteries-of-the-financial-system.pdf,
‘Green Money: Why we need it? How to get it?’ posted at:
http://ssrn.com/abstract=2103899.
Introduction to Green Money Working Group http://www.gtne.org/?q=node/337
Green Money Working Group http://www.gmwg.org
‘Transforming finance from the bottom up’. Online conversation with coproducers of the Better World Forum, GMT 23:00, April 22, 2012. Archived at:
http://ds1.downloadtech.net/cn1086/audio/14215157971873-001.mp3.